Tag Archives: Equifax

Spend $45 to Save $36,000

Two weeks ago, I received an email from a listener in Kelowna asking for some financial feedback. The email had enough in it to fill an hour or more, but here are the highlights:

This middle-aged couple has done really well in their investments. They have significant RRSPs and contribute 5% to their pension plan. They do have an RRSP loan at a good rate – and I won’t fuss about that.

They live within their means, no extravagant spending, small mortgage at a great rate, and an income of over $100,000.

On the debt side, it’s a different story. When they bought the Money Tools book at Mosaic, they immediately found $12,000 savings! Pretty good for a $20 investment! I keep saying: You go to almost any page and you’ll find a way to save money in whatever area! In their case, they have a line of credit that’s insured with life and disability. That’s one of THE biggest ripoffs in the financial field. The bank’s profits are 50 to 60%. Never get your insurance from the bank – ever. He immediately called to cancel it, but was on hold for 1 1/2 hours and never did talk to someone. Well, don’t bother calling. Write a three sentence letter that you want it cancelled as of today and deliver it to your branch. Banks can have a way of ignoring a call, claiming they never received it, etc. in order to protect their profit. In writing and delivered gets it done.

Their line of credit has been around since finances weren’t so good in the 1980s. It’s around $40,000 at a rate of over six percent! The rate is always prime plus something. That rate may have been OK when things weren’t so good, today it’s a massive overcharge. His credit score is over 780! He’s in the top 10% most credit worthy people in the country and ought to pay prime! 3% over for the last 10 years and on-track to only pay it off in another decade is over $25,000 in extra interest! All he did was go to equifax and pull up his credit score! When rates go up, lenders move up your rate. When your credit improves, they’re not voluntarily passing on a lower rate! You have to know your score and go ask – or demand it or fire your bank.

In the case of this couple, I wouldn’t move the credit line, but just get from the 10-year plan to one that pays it off pretty easily by Christmas this year. They have $20,000 in savings. Read the step up debt repayment section: First pay off your debts, then start saving. In their case, they should keep $5,000 for emergencies, dump $15,000 onto the credit line and pay $2,000 a month to get it done. It will take another six months to pay off the RRSP loan, and by June next year, they’d be debt free – instead of the 10-year payment plan they are on.

With a great income and getting really mad and motivated, they would be

$25,000 insurance cancellations for the 10 years the line of credit would take to pay off on their current plan

or: $25,000 (roughly) to pay off the line of credit 10 years sooner

$11,000 paying off the RRSP loan (the interest isn’t tax deductible) nine years sooner (by next summer)

That’s $36,000 of savings by spending $20 on the book and $25 on pulling their credit score. That’s a pretty good return!!

Then, next June to December, they can save the $500 they were paying on the RRSP, the $2,000 they were paying on the line of credit for six months or a total of $15,000 by just re-directing what they had been paying on their debts!

Graduating to Financial Adulthood

In most places, when you’re 18 you’re an adult. In BC, the age of majority is 19 and by 21 you can do anything anywhere. You’re done with high school and can drive, drink, vote, borrow or invest, and live on your own. However, for the majority of the population, that doesn’t make them a financial adult. That can happen soon after, or it might not happen until your 30s or 40s – if ever…

This week and next, I want to go through a list of what I believe makes you a financial adult. It doesn’t mean you have to be debt free or take a university course. The essence of it is that you need to be in control of your finances and money, instead of it being in control of you. You’re pro-active versus reactive and out of control. If you do these, or know how to do these, congratulations! You’ve graduated! Some are easier than others, but all are really important.

1..You have at least one-week of income as basic emergency fund and are working towards a full three to six months of all your expenses.

2..You have two credit cards and a debit card. Your credit card balances are less than 30% of your limit (or are lowering your balances every month in order to get there) and you do not have or use an overdraft on your chequing account.

3.. In the last two years you have checked your credit report and credit score at least once and your credit report is accurate. In other words: You’ve disputed and had them fix any errors. (Go to Equifax.ca and purchase ‘score power’ which is your credit report and score.

4..You have opened an RRSP account and/or Tax Free Savings Account and make a regular monthly contribution. No matter how small – at least you’ve started and have traction.

5..You have basic insurance. Car and home coverage is obvious. But if you’re a renter, you have a tenant fire insurance policy and if you have a child, or a partner, you have a term life insurance policy.

6..Whether you’re single or married, rich or broke, you have a properly completed will. It can be a $20 do it yourself kit if you’re single, or a lawyer-prepared one if it’s more complex and you have kids. But you (or you and your partner) do have a will.

7..You know the actual amount of your net take-home pay every month. You can’t control your money if you don’t even know the exact amount you net and keep talking about your gross pay as if that were what you could spend each month.

8..You have done at least a one-time budget, or have a system of tracking your spending.

9..Your monthly spending is less than your monthly take-home pay. You may have ten cents left or $1,000 – but you’re not spending more than you earn. Financial adults figure out how to pay for something and then buy it. Others buy it and then figure out how to pay for it later.

10..You know your net worth. At least once a year you figure out what your total assets are (what you own) less your total debts (what you owe) and whether you’re growing it by savings, or whether it’s shrinking by going into debt.

11..You have a system for paying your bills every month. Waiting for the mail is not a system! Whether it’s an app on your phone, setting up automatic payments, a calendar, an on-line program or a simple check list you look at every month – it needs to be a specific system.

Waiting for the bill in the mail isn’t a plan. If the statement doesn’t come and you forget, your credit rating plummets. Blaming the post office won’t work. It’s your fault that you don’t have a system for staying ahead of the game and on top of your bills.

12..You have a proper filing system for your financial stuff. It can be six large envelopes for each of the last six years, or a ton of file folders, if you’re an organizational nerd. Kids get to say ‘I lost it.’ Financial adults don’t have that option. The graduating test will be whether you can find your tax return from 2011, or a bank statement from February within 10 minutes.

13..You are taking specific steps every month to pay off your existing debt, excluding your mortgage. You are paying more than minimum payments and your total debt is shrinking each month. You have a specific month and year that you’re working towards when you will be debt free except your home.

14..In the past year you have made at least one call to dispute a charge, ask for a lower rate, or comparison shop. If you don’t know how to stand up for your money – others will gladly keep taking it from you.

15..If you’re in a committed relationship, you and your partner spend at least an hour each month without the TV or kids discussing your money, savings, bills, purchases and budget. Kids spend – financial adults have a plan and communicate.

16..You have at least two specific and measurable financial goals. Saving more in my RRSPs, or paying off my credit card isn’t a financial goal – it’s a dream. It needs to be specific: Saving $150 a month in RRSPs is specific and measurable. Reducing my credit card balance by $200 or more every month until it’s paid off is a measurable and specific goal.

17..At least once each month you have the self-confidence to say no to an expense. It may be at work, to your kid, or to yourself. If you don’t know (or don’t want to) say no or say that you can’t afford it, or don’t need it you’re doomed to have your money continue to control your life, instead of the other way around. Setting boundaries is what financial adults do.

18..On anything expensive you shop around before committing to a debt or a bill. That includes interest rate shopping, your insurance, cell phone contract, and your credit card interest rate if you always carry a balance. Kids impulse buy until they’re out of money – financial adults don’t spend until they’re broke. If you do – you can skip the other items and save a bunch of time and effort – you’re doomed to be broke for years to come.

While You Weren’t Looking Your Credit Card Charges & Rates Went Up!

As I keep saying: What happens in the U.S. will come to Canada. This time, it’s a massive increase in credit card penalty interest rates. It was announced last week by the CIBC and TD that, if you get behind on your credit card, they’ll jump the rate – a lot!

It’ll increase by up to 15%. That’ll put a low rate credit card of 12% or so to upwards of 27%. And it used to be for six months – now you’ll be in the penalty box for a year at that insane rate. If you play with fire, you’re going to get burned. Credit cards are a great convenience but they’re not your friend. If you carry a balance, low rate 12% cards are a bad rate, 20% normal cards even worse – but 27% is insane. And who pays them? The people who can least afford the penalty rates, because they have a hard time making the minimum payments. Don’t charge today what you can’t pay off by the end of the month. Whatever you’ve bought on your credit card isn’t worth paying for years at close to 30%.

The second bank change, this one on lines of credits and credit cards, also has to do with your credit rating – your credit score. You’ll see a ton of rates that are now “prime plus.” When rates go up, your rates will go up right with it the following month. On the TD website, their Emerald credit card is now prime plus 1.5% to prime plus 12.75%. If you apply, you don’t know what your rate will be when you get the card in the mail. It might be low or insane. That totally depends on your credit rating. Reason number 238 to go to equifax.ca and purchase your credit score. If you don’t understand it, email it to me and I’ll explain it, or go to yourmoneybook.com for the US Fighting Back! book. It has a huge section on credit scores…something Americans all know and live and die with. Us Canadians better get to learn it, too – it’s coming to Canada right now!

Hacking an ATM Seems Easy & God Can’t Get Credit?

Two 14-year olds in Winnipeg seemed to have no trouble hacking a Bank of Montreal ATM machine. They found an ATM internal operating manual online and decided to test it at a real machine.

They actually managed to get into the operating system of the ATM, and guessed the six digit password on the first try! Gee, when the password is 123456 you think there’s a problem? That was enough for them to get out of the system and go into the branch to share their information. But the branch staff didn’t take them serious. So the kids asked if it would be OK to get the proof and were told good luck trying.

Back at the ATM, they went back into the operating system and printed out the amount of money in the machine, the transaction history and the income made from surcharges.

They even changed the ATM surcharge down to a penny and the greeting to read: Welcome to the BMO ATM. Go away! This ATM has been hacked.

Back in the branch with all the printouts, the staff now realized they had a problem.

BMO Media relations stated in an email to the Calgary Herald that no customer information and contents of the ATM were ever at risk. Yea..right…

God can’t get credit?

A Russian immigrant by the name of God Gazarov can’t get credit. Yes, his first name really is God. He was named after his grandfather, and in Eastern Europe that first name is quite common. It’s kind of like many Latinos name their son Jesus.

But Equifax, one of the credit reporting agencies is refusing to accept his first name. As a result, they won’t open a file with his current credit references. No credit report – no borrowing, no credit cards, or car loan – something he tried to apply for last year. He now has a lawyer and is suing Equifax.